Posts Tagged ‘retirement’

I have heard, all to frequently, about people losing Medicare coverage for skilled nursing care because it had been determined that they had reached a “healing plateau.” That is, they were not improving from the skilled nursing care they were receiving (and would not improve from additional skilled care) and, therefore, were deemed to be only receiving “custodial care”, not the skilled nursing services required for Medicare benefits.

While that may have been the standard in the past, it is not the standard today, but it still comes up. As it did recently, when a federal judge ruled against the Social Security Administration and rejected “Improvement” as a criterion for continuing Medicare skilled nursing facility (SNF) coverage. Here is a summary of the case.

A federal district ruled that an administrative law judge (ALJ) with the U. S. Centers for Medicare & Medicaid Services (CMS) improperly denied Medicare benefits to a patient in a skilled nursing facility. The ALJ had concluded that “[i]t became apparent that no matter how much more therapy the Beneficiary received, she was not going to achieve a higher level of function.”

After undergoing hip replacement surgery on April 28, 2008, Mary Beth Papciak, 81, developed a urinary tract infection and was readmitted to the hospital. On June 3, 2008, Ms. Papciak was discharged by Dr. Tuchinda to ManorCare to receive skilled nursing care, physical therapy and occupational therapy. Upon Ms. Papciak’s admission to ManorCare, Ms. Papciak was unable to ambulate and could not use her walker due to numbness of her hands due to what was later diagnosed as carpal tunnel syndrome. Ms. Papciak also had a history of cellulitis, anemia, cholecystectomy, chronic atrial fibrillation, hypertension, anxiety and depression.

Ms. Papciak received therapy five days a week; however, she made slow progress during her stay. Her therapy included physical and occupational therapy, treatment, self care, therapeutic exercises and therapeutic activities. Her initial treatment was primarily for ambulation. Medicare paid for the skilled care Ms. Papciak received from June 3 through July 9, 2008. It was determined, however, that effective July 10, 2008, Ms. Papciak no longer needed skilled care because Ms. Papciak had made only minimal progress in some areas, had regressed in other areas, and had been determined to have met her maximum potential for her physical and occupational therapy. As a result, Medicare denied payment from July 10 through July 19 because Ms. Papciak was only receiving “custodial care,” not the skilled nursing services required for Medicare coverage.

Ms. Papciak appealed the decision denying coverage, and her appeal worked its way up the chain to an administrative law judge, which upheld the denial, which was then upheld by CMS’s Medicare Appeal Counsel (MAC). After exhausting her administrative remedies, Ms. Papciak sought relief in federal district court.

The federal district court sided with Ms. Papciak. The proper legal standard to be applied to a patient entitled to Medicare benefits in a skilled nursing facility is whether the patient needs skilled services to enable her to maintain her level of functioning.

In the CMS Medicare Skilled Nursing Facility Manual which sets forth the standard to be applied, the reviewing authorities must give consideration to a patient’s need for skilled nursing care in order to maintain her level of functioning. The relevant portion reads: “The services must be provided with the expectation, based on the assessment made by the physician of the patient’s restoration potential, that the condition of the patient will improve materially in a reasonable and generally predictable period of time, or the services must be necessary for the establishment of a safe and effective maintenance program.”

Neither the ALJ nor the MAC addressed Ms. Papciak’s need for skilled nursing care in order to maintain her level of functioning. This was error, held federal Magistrate Judge Cathy Bissoon, requiring that the decision to deny her benefits be overturned.

The ALJ had concluded that “[i]t became apparent that no matter how much more therapy the Beneficiary received, she was not going to achieve a higher level of function.” Similarly, the MAC stated that “[d]espite the appellant’s arguments to the contrary, the enrollee made little or no progress in therapy from the time of her admission to ManorCare through her discharge from skilled care on or around July 10, 2008.”

This is a common misunderstanding about Medicare’s skilled nursing facility benefit, that the patient must be showing “progress” in order for Medicare to pay for her care. Indeed, federal regulations state that “[t]he restoration potential of a patient is not the deciding factor in determining whether skilled services are needed. Even if full recovery or medical improvement is not possible, a patient may need skilled services to prevent further deterioration or preserve current capabilities.”

What happened to Ms. Papciak? She was hospitalized again, discharged to a different skilled nursing facility, where she received physical and occupational therapy under the Medicare benefit, and was discharged home on August 21, 2008.

In these trying economic times, more and more people who need money are looking to sources such as their retirement accounts. Generally speaking, if you withdraw money from a traditional individual retirement account (IRA), 401(k) or other qualified retirement plan before age 59½, you are subject to a penalty. Early withdrawals carry a 10 percent federal penalty and a 3.3 percent Wisconsin penalty. The money is also considered taxable income

Before taking that hit, consider these options.

Tap your Roth IRA or Roth 401(k). This is one of the easiest ways to get at retirement funds because you can make withdrawals of contributions (but not earnings), without paying penalties or taxes since contributions are made with after-tax money. But be aware that the long-term impact of raiding your Roth can be significant since you won’t have as much money growing tax-free for years.

Take out a 401(k) loan. Most 401(k) plans and several other types of employer-sponsored plans allow investors to borrow up to half of the vested balance in their account, up to $50,000. Terms vary, but most require borrowers to repay the loan within five years. Those who use the money to buy a home may get a longer repayment period. Plus, the 401(k) loan typically requires no credit check, minimal paperwork, and borrowers often get a better interest rate than at a bank.

Use one of the exceptions to penalties. There are a bunch of them.

You can, for example, take regular distributions from an IRA, 401(k) or other retirement account. This is the most commonly used option. You are permitted to make regular withdrawals of equal annual amounts over your remaining life expectancy without paying the penalty. You must take these payments at least once a year for a minimum of five years or until age 59½, whichever is longer.

Other exceptions include:
• Becoming totally and permanently disabled.
• Being in debt for medical expenses that exceed 7.5 percent of your adjusted gross income.
• Being required by court order to give the money to your divorced spouse, a child, or a dependent.
• Being separated from service (through permanent layoff, termination, quitting or taking early retirement) in the year you turn 55, or later.

It’s a good opportunity to share some information I’ve come across that you might find helpful.

Retirement planning calculators can be misleading
How much do you need to save for retirement? You can get an idea by using any of the dozens of retirement calculator tools offered for free on the Internet. But a recent study by actuarial experts on retirement forecasting shows that many popular calculators have serious flaws. These problems could lead to serious miscalculations when you’re plotting your retirement. The report by the Society of Actuaries analyzed 12 retirement calculators created by financial services firms, software companies, nonprofits, and government for consumers and financial planning pros. All but one of the six consumer calculators were free, but they had a host of problems. “These tools take a project that is fairly complex and boil it down to something simple,” says John Turner, an economist and co-author of the report. “They don’t ask you to consider a lot of important variables.”

It’s important to be aware of these variables when it comes to online retirement calculators.

2010 Cost-of-Care Survey
Genworth Financial has released its 2010 annual survey of the cost of various long-term care services around the country, including average costs of home care providers, adult day health care facilities, assisted living facilities and nursing homes.

SUMMARY OF 2010 FINDINGS

Long-Term Care Services

National Median

Increase over 2009

5-Year Annual Growth

Homemaker Services (Licensed)

Provides “hands-off” care such as helping with cooking and running errands. Often referred to as “Personal Care Assistants” or “Companions.” This is the rate charged by a non-Medicare certified, licensed agency.

Hourly Rate $18

3.0%

2.4%

Home Health Aide Services (Licensed)

Provides “hands-on” personal care, but not medical care, in the home, with activities such as bathing, dressing and transferring. This is the rate charged by a non-Medicare certified, licensed agency.

Hourly Rate $19

2.7%

1.7%

Adult Day Health Care

Provides social and other related support services in a community-based, protective setting during any part of a day, but less than 24-hour care.

Daily Rate $60

12%

Data not available

Assisted Living Facility (One Bedroom/Single Occupancy)Provides “hands-on” personal care as well as medical care for those who are not able to live by themselves, but do not require constant care provided by a nursing home.

New Wisconsin law increases penalties for swindling seniors
A new state law gives tougher penalties to those caught swindling money from the elderly. The law allows double the punishment and higher restitution payments for those who con victims 65 and older. Patricia Struck of the state Department of Financial Institutions says up to half the securities fraud cases it investigates now involve older victims. Last year, all but 10 of the agency’s 27 enforcement orders were for cases involving victims older than 65. Going into this year, the department had 93 investigations still pending. Struck says many older investors are worried that they’ll outlive their retirement savings – and swindlers prey on those people.

The Social Security Administration (SSA) has just launched a new service that allows people to enroll online for their Medicare benefits even if they are not yet ready to file for Social Security benefits. About a half million Americans enroll in Medicare each year without applying for Social Security benefits.

The new online Medicare application makes it easier for people to enroll in Medicare. It saves a trip to the Social Security office, and you can complete the application at your own pace at home. The SSA says it takes less than 10 minutes to complete.

You can use the online Medicare application if you are at least 64 years and 8 months old, do not want to start receiving Social Security benefits in the next four months, and live in the U.S. or one of its territories or commonwealths. The application guides you through a brief set of questions that will help you consider either filing for Social Security and Medicare benefits, or filing only for Medicare. There are links to more information for people who have questions.

With Congress in a stalemate, it looks like tax uncertainty will be around for awhile. There was a good article in the Wealth and Personal Finance section of the New York Times on February 18. A copy of that article can be found here.

One of the strategies covered in the article, which I have been recommending to my clients, is converting traditional IRAs to Roth IRAs. This results in the recognition of income and the payment of tax. This strategy requires some analysis to make sure it works for you, but later distributions from a Roth IRA are not taxable income and there are no minimum required distributions to worry about in retirement.

The greatest obstacle to this strategy in Wisconsin has been that Wisconsin law differs from federal tax law. Wisconsin law does not permit IRA conversions, which leads to problems like being subject to an excise tax.
The good news is that the Wisconsin legislature has passed a law conforming Wisconsin law to federal law. It is waiting for the governor to sign it. He said that he would. I will let you know as soon as he does.

There are ways to supercharge an IRA conversion. Split your IRA into separate IRAs according to investment type before doing the conversion. That is, create an IRA for your large cap investments, a separate one for mid-caps, and so on. That gives you a right to a “do-over” depending on the performance of the investments.

For example, a taxpayer has two mutual funds in her IRA. One is a large cap fund and the other is an emerging growth fund. She splits the IRA into two IRAs. One holds the large cap mutual fund and the other holds the emerging growth fund. By converting the $100,000 large cap IRA in 2010, she will recognize income of $100,000 and pay tax on that amount (if no other tax planning is done). The same is true of the $50,000 emerging growth IRA. The taxpayer, however, has the right to re-characterize her IRAs by the due date of her tax return including extensions (October 15, 2011). She can change back to a traditional IRA and recognize no income. So if the large cap fund declines in value to $60,000, she can re-characterize and not recognize $100,000 of income. Then she can start all over again and convert her IRA in 2011, but at the lower value of $60,000. None of this affects her emerging growth IRA which doubled in value during the same period and which she wants to keep in a Roth IRA.

Good move. Who would want to re-characterize and then recognize more income in a later conversion?

If an opinion piece in the Sunday Milwaukee Journal Sentinel Crossroads section is any indication, there is going to be a lot of discussion of the subject of Social Security in the years to come. Not all will be good advice.

In the article (To collect or not to collect), Carolyn Kott Washburne shares her personal struggle with the decision about whether or not to start collecting Social Security benefits at age 66. The author had a friend do the math and determined she would have to live to age 80 to recoup what she would lose by not starting at age 66.

The decision seems shortsighted to me. By focusing solely on how long she will have to live to break even if she delays collecting until age 70 – at which time her checks will be almost 30 percent more than if she starts collecting at 66 – she omits pertinent factors in making a sound decision.

She does not consider what affect her decision will have on a spouse. Taking it earlier may decrease the amount her spouse can take, depending on his work history. And it appears she doesn’t expect to live to age 80 or beyond even though her life expectancy is 84. In fact, life expectancy statistics indicate that she has a 50 percent chance of surviving past age 84, and 33 percent chance of living beyond 93. Every day people spend a lot of cash on lottery tickets with much higher odds against them.

I am about to leave on vacation so you probably won’t be hearing from me until the end of next week. At that time I intend to pick up where I left off with my thoughts regarding long-term care insurance.

Our parents (parents of baby boomers and earlier generations) emphasized savings. We were told that credit was a last resort. There were layaway plans in which desired products were set aside by shop keepers until the price was fully paid in installments. There were Christmas Clubs at the local bank or savings & loan so we could sock a little away each month and have the money for Christmas presents in December. Even most cars were purchased largely with cash (until the early 60s when financing became freely available). About the only thing purchased with credit was houses, but you were expected to have at least 20 percent for the down payment. Again, it wasn’t until the 60s, with the acceptance of mortgage insurance, that people started buying houses with as little as five percent down. And, as we all know, by 2005 purchases were being made with zero down.

Prior generations had two frequently expressed rules. First, you should have at least six months of living expenses saved before you used credit or invested in anything. Second, you should pay off your home mortgage before you retire. With the financial meltdown of the last couple of years, many believe we should return to these principles and this view of credit.

Here’s my take. In order to have a financial safety net, access to cash (financial liquidity) is important. Many of us thought having an equity line of credit was enough. Clearly it is not. Financial institutions called them due during the crisis, leaving borrowers with no way to pay them off much less meet other needs. Our parents were right. You need ready cash available for emergencies. Six months worth may be enough but for us baby boomers I think it should be more.

Because I think having cash is so important, I don’t necessarily agree with the second rule. If you want to stay in your home and have cash protection, the best alternative may be getting a long-term, flat rate mortgage while you are working and still can. This requires some figuring out because you will need to be able to pay the mortgage after you retire, and for as long as you want to stay in your current home. Seeing a good financial planner is recommended.

That’s what I did. I got a 30-year mortgage at age 61. I took enough cash out of my home to pay 2+ years of expenses, and put it in safe, short-term investments. I have always slept well and now I am assured I will continue to do so.

“Retirement at sixty-five is ridiculous. When I was sixty-five I still had pimples.” – George Burns

For those of you who are younger, I promise to move on to other things shortly but I first want to complete my thoughts about the current challenges to baby boomers. We have been called the “Me” generation that lives for “now.” What we see in our law practice bears out the conclusions of studies stating baby boomers are not in good shape financially. The recent (current?) recession has made this even worse.

I mentioned previously that one strategy is to continue working past your normal retirement age. This plan has two weaknesses – the availability of good paying jobs and the need for good health. Addressing them will require flexibility.

On the jobs front, we will need to change. Jobs may not be available where we live (or want to live) so we may have to move to where they are located. Probably more important, though, is a willingness to get new training and try new jobs. I recall that when I was in college (a long time ago – my 40th reunion is this June), a labor economist was fond of emphasizing that big changes were coming. Unlike our parents who may have had only one employer for their entire lives, we were going to face having three to five employers in our lifetimes. And this was true, but most of us stayed within the same job type or profession. About a decade ago I accompanied my kids to meetings at the high school for vocational counseling. These counselors informed us that the kids would change employers more than five times, and at least half of those employers would be hiring them for jobs that do not even exist now. The meaning of this aside? We need to be aware of the changed economy and get the necessary training to get and keep good paying jobs.

Of course you can only do the job if you are healthy. A report released Wednesday by the Centers of Disease Control and Prevention confirms that 68 percent of adults are too heavy and 34 percent are obese. Being overweight strongly correlates to health problems, but health (and weight) is something we can do something about. It’s hard. It involves lifestyle changes; changes in eating and exercise habits.

I know if I am going to practice law as I have planned (forever if possible), I need to be in good health. I belong to the YMCA and have a personal trainer. Call me in a year. I intend to be a fraction of my current self.

Next time I am going to address some of the financial lessons from the last couple of years that can help – not only baby boomers but everyone.